Government defends decision to re-allocate council funding

The Government denied yesterday that it was "mugging Middle England" as it announced an overhaul of town hall finances in which cash will be redirected from the South to the North and Midlands.

The Government denied yesterday that it was "mugging Middle England" as it announced an overhaul of town hall finances in which cash will be redirected from the South to the North and Midlands.

The Tory party claimed that council tax bills for "ordinary families" in the South would have to rise to more than £1,000 a year because ministers had penalised shire districts.

Nick Raynsford, the Local Government minister, said a new system of distribution would be fairer because it would better reflect population density. He dismissed claims that grants for the South-east would be cut drastically as "scaremongering" and said council taxes need not rise if town halls were prudent.

The settlement, the first under the new system, will mean that local authorities will receive grants and business rates worth £51.2bn in 2003-04, an 8 per cent rise on this year. On average, the South-east will receive a 4 per cent increase in funding, compared with 7 per cent in the East Midlands and 6 per cent in the North-east.

Eric Pickles, the shadow Secretary of State for Local Government and the Regions, accused ministers of using a "stealth tax" to push up bills. "Labour are mugging Middle England," he said.